Brad DeLong's Grasping Reality

Mark Halperin of ABC says that his entire career up to this moment has been spent hurting America:

How ‘What It Takes’ Took Me Off Course: MORE than any other book, Richard Ben Cramer’s “What It Takes,” about the 1988 battle for the White House, influenced the way I cover campaigns. I’m not alone. The book’s thesis — that prospective presidents are best evaluated by their ability to survive the grueling quadrennial coast-to-coast test of endurance required to win the office — has shaped the universe of political coverage. Voters are bombarded with information about which contender has “what it takes” to be the best candidate. Who can deliver the most stirring rhetoric? Who can build the most attractive facade? Who can mount the wiliest counterattack? Whose life makes for the neatest story? Our political and media culture reflects and drives an obsession with who is going to win, rather than who should win.

For most of my time covering presidential elections, I shared the view that there was a direct correlation between the skills needed to be a great candidate and a great president. The chaotic and demanding requirements of running for president, I felt, were a perfect test for the toughest job in the world. But now I think I was wrong. The “campaigner equals leader” formula that inspired me and so many others in the news media is flawed.

Case in point: Our two most recent presidents, both of whom I covered while they were governors seeking the White House. Bill Clinton and George W. Bush are wildly talented politicians. Both claimed two presidential victories, in all four cases arguably as underdogs. Both could skillfully serve as the chief strategist for a presidential campaign. But their success came not because they convinced the news media (and much of the public) that they would be the best president, but because they dominated the campaign narrative that portrayed them as the best candidate in a world-class political competition. In the end, both men were better presidential candidates than they were presidents.

For instance, being all things to all people worked wonderfully well for Bill Clinton the candidate, but when his presidency ran into trouble, this trait was disastrous, particularly in the bumpy early years of his presidency and in the events leading up to his impeachment. The fun-loving campaigner with big appetites and an undisciplined manner squandered a good deal of the majesty and power of the presidency, and undermined his effectiveness as a leader. What much of the country found endearing in a candidate was troubling in a president.

When George W. Bush ran in 2000, many voters liked his straightforward, uncomplicated mean-what-I-say-and-say-what-I-mean certainty. He came across as a man of principle who did not lust for the White House; he was surrounded by disciplined loyalists who created a cheerful cult of personality about their candidate. As with Mr. Clinton, though, the very campaign strengths that got Mr. Bush elected led to his worst moments in office. Assuredness became stubbornness. His lack of lifelong ambition for the presidency translated into a failure to apply himself to the parts of the job that held less interest for him, often to disastrous effects. The once-appealing life outside of government and public affairs became a far-less appealing lack of experience. And Mr. Bush’s close-knit team has served as a barrier to fresh advice.

So if we for too long allowed ourselves to be beguiled by “What It Takes” — certainly not the author’s fault — what do those of us who cover politics do now? After all, Mr. Cramer’s style of campaign coverage is alluring in an election season that features so many candidates with heroic biographies and successful careers in and out of politics. (Not to mention two wide-open races.) Well, we pause, take a deep breath and resist. At least sometimes. In the face of polls and horse-race maneuvering, we can try to keep from getting sucked in by it all. We should examine a candidate’s public record and full life as opposed to his or her campaign performance. But what might appear simple to a voter can, I know, seem hard for a journalist.

If past is prologue, the winners of the major-party nominations will be those who demonstrate they have what it takes to win. But in the short time remaining voters and journalists alike should be focused on a deeper question: Do the candidates have what it takes to fill the most difficult job in the world?

Two big things mar the op-ed. First: the assertion of equivalence between Clinton's mistakes and Bush's. Clinton was a pretty good president, after all. Bush is not.\

Second: missing from the op-ed are two words: "I'm sorry."

And there is a third. Halperin writes:

When George W. Bush ran in 2000... [I] liked his straightforward, uncomplicated mean-what-I-say-and-say-what-I-mean certainty. He came across as a man of principle who did not lust for the White House; he was surrounded by disciplined loyalists who created a cheerful cult of personality about their candidate...

Carlyle Group CEO David Rubenstein had a different reaction to George W. Bush:

David Rubenstein: you know if you said to me, name 25 million people who would maybe be President of the United States, he wouldn't have been in that category...

That was the reaction of everybody not on Bush's payroll who has met Bush I have talked to--everybody except our elite Beltway press, that is, people like Mark Halperin.

• Robert Fleeger: Theodore G. Bilbo and the Decline of Public Racism, 1938-1947
• Robert Fleeger: Theodore G. Bilbo and the Decline of Public Racism, 1938-1947
• John Holbo: Bilbo, “the Man” vs. Bilbo, the halfling
• Ezra Klein: Flynn on "The Flynn Effect"
• Yves Smith: Still More Grim News from the Credit Markets
• Paul Krugman: Listening to Libor
• Paul Krugman: Banks Gone Wild

1. Does it matter that a huge hunk of Citigroup is owned by Alaweed
   ibn Saud rather than some guy who lives on Kentucky or Alberta?

2. Does it matter that Applied Materials--the company that makes the
   equipment other companies use to make the chips other companies use to
   make the gadgets other companies use to market the lifestyle--has its
   headquarters in San Jose, California rather than in Stuttgart or
   Shanghai?

3. Does it matter that Applied Materials has its engineers in San
   Jose, California and not in Kuala Lampur or Rio de Janeiro?

4. Does it matter that venture capital firm Kleiner-Perkins is in Palo
   Alto, California and not in Tokyo or Milan?

5. Does it matter that Citigroup's headquarters is in New York rather
   than in London or Bombay?

6. Does it matter that Apple's iPods are made in Shenzhen, China,
   rather than in Austin, Texas, or Window Rock, Arizona?

Related Issues:

• National regulation: class A stock
• National regulation: official supervision and merchant management
• Sovereign wealth funds
• IBM and Lenovo
• James Fallows on the :-) and China: resources, assembly, and design
  and marketing
• Political pressure, financial pressure, and post-WWI technology
  transfer from Germany to the U.S.; was political or national financial
  pressure used?
• Peter Drucker and his predictions about pension-fund socialism
• Alto Adige and Trentino
• Gazprom and P&O?

A very well done comic-book movie. An excellent story. But it is not the story of Beowulf. It is a different story.

"The Thirteenth Warrior" is a better Beowulf. It may or may not be a better movie. I am not sure.

• Kristine Smith: Endgame
• Phillip Carter: A formula for blowback

All the assembled lobbyists of America cannot support a Legal Seafoods on K Street?

What good are they?

We took refuge in the Bombay Palace...

• Tanta: Dear Mr. Paulson
• Ronald Bailey: The Theory of Moral Neuroscience

Hoisted from Comments: Low-Tech Cyclist Writes:

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal: I know bringing up Fred Hiatt is like shooting fish in a barrel on this score, but the WaPo has a subset of its unsigned editorials where it comments on what it calls "the ideas primary."

Five of the last seven Ideas Primary editorials have been on the Social Security 'crisis.' There have been 15 editorials in this series. One has been on global warming - the greatest crisis of our era - and two have been on our greatest domestic crisis, the lack of universal health care and the upcoming crisis in the Medicare trust fund. None have been on Iraq and the power vacuum we've created in the center of the Middle East.

Interesting set of priorities, huh?

http://www.washingtonpost.com/wp-dyn/content/linkset/2007/04/27/LI2007042701687_1.html

As I have said before, there is something very wrong with everybody who is currently helping to put the Washington Post in newsprint on the streets of Washington these days. In the future everybody involved is going to be claiming that they spent the Graham-Downie-Hiatt years representing tobacco companies or lobbying for the government of Sudan.

Baldwin writes:

Feldstein’s view on the dollar | vox - Research-based policy analysis and commentary from Europe's leading economists: In a May 2007 essay, Martin Feldstein argued that a drop in US mortgage refinancing would raise US personal saving and this would necessitate a fall in the dollar. That’s looking pretty good at the moment.... Something that stumps every undergraduate, and not a few PhD economists, is how a nation’s trade deficit, or more precisely, its current account deficit can be two things at once: #1) The gap between national investment and national savings, and #2) the difference between exports and imports. This is not a ‘can be’ relationship; it is a ‘must be’.

Number two requires no explanation; it’s just a definition. Number one follows from a line or two of national-accounts algebra. A nation’s aggregate purchase of goods is the sum of what its public and private sectors spend on consumption and investment. Its aggregate sales of goods equal the value of what its public and private sectors produce and this, in turn, is its aggregate income. Plainly, the difference between a nation’s spending and earning must be its trade balance with the rest of the world; if its aggregate purchases exceed its production/income, then some foreign goods must, on net, be coming in to satisfy the excess demand. Finally, since income must be either consumed or saved, the spending-earning gap is also the investment-saving gap; consumption cancels from both sides of the equation.

Feldstein makes a bold simplification that helps him to think clearly about the messy world. He takes US savings and investment as primitives and views the value of the dollar as the variable that adjusts to make things fit. As he writes it: “This line of reasoning leads us to the low level of the U.S. saving rate as the primary cause of the high level of the dollar.”... The US’s net purchase of foreign goods is predetermined by its savings/investment gap and the dollar must jump to make people happy buying and supply the necessary net flow of foreign goods.... The real explanation comes in understanding why US savings was so low relative to its investment.

Feldstein focuses on personal savings. “Two primary forces have been driving down the household saving rate,” he wrote, “increasing wealth and, more recently, mortgage refinancing.”... Feldstein not only calls the dollar’s drop, he links it to developments in the US housing market. True, his logic did not lead him to predict the subprime crisis, but that is more a matter of how, not what.... The rest of the essay discusses why the foreign exchange market didn’t anticipate the adjustment that Feldstein said must occur. His reasons are less remarkable – Asian official intervention and myopic investors....

Feldstein... also considers... that the whole thing could unwind.... “The primary risk... is that the decline of the dollar and the rise of the saving rate will happen at different speeds, leading to domestic imbalances.”... If the US saving rate rises without a dollar drop, there is no narrowing of the trade gap to offset the closing saving/investment gap. Aggregate demand falls and we get a US recession... “the domestic weakness will occur unless the dollar decline precedes the rise in saving.”

Put that way, it sounds paradoxical. It seems better to phrase it thus:

The domestic U.S. recession will occur unless the fall in the dollar and the boom in exports preceded the cutback in consumption spending...

For a rise in savings is a fall in consumption spending.

• Felix Salmon: 2005 Heron Pinot Noir
• Kevin Drum: New Hebrew word: lecondel: to come and go without produce ing results
• Jim Hamilton on the Fed bank presidents' forecasts
• Cosma Shalizi to the rescue: I Demand That Slate Refund My Subscription
• Steve Benen: Wounded soldiers asked to return signing bonuses

A reminder: if I notice them, comments that I regard as factually false or as rhetorically destructive to the ongoing conversation will get deleted, if I notice them--I don't have time to moderate this properly, but I am trying. I am anxious to run an informative seminar. I am not enthusiastic about hosting a foodfight.

The place to comment on the comment policy is here: http://delong.typepad.com/sdj/comment-policy-a-seminar-.html

An earlier comment policy page: http://delong.typepad.com/sdj/2005/03/dealing_with_tr.html

The best thing on comment policy I have ever read: http://nielsenhayden.com/makinglight/archives/006036.html

I had alays thought that Julius Rosenberg was guilty, and that Ethel Rosenberg was judicially murdered. Now their sons write to make a strong case that Julius's execution was primarily not an act of retribution and to deter future espionage but rather part of a cover-up to boost the reputation of the FBI and other agencies. Andres directs us:

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal: Now that Brad has brought up McCarthyism and someone else has brought up Alger Hiss, let me pull an anne and bring up another case of Cold War victimization/witch hunting:

http://www.nytimes.com/2007/11/17/opinion/l17rosenberg.html?_r=1&n=Top/Opinion/Editorials%20and%20Op-Ed/Letters&oref=slogin The Case of the Rosenbergs: Their Sons’ View. A Spy’s Path: Iowa to A-Bomb to Kremlin Honor (November 12, 2007):

“A Spy’s Path: Iowa to A-Bomb to Kremlin Honor” (front page, Nov. 12), about a Soviet spy who helped steal atomic secrets during World War II, provides powerful evidence that our parents, Ethel and Julius Rosenberg, were wrongfully executed. History students are taught that our father headed a conspiracy that stole “the secret” of the atom bomb (historians are uncertain about the role of our mother). Meanwhile, government officials sat on the story of the spy revealed in your article. Later in the article, a historian is quoted as saying, “It would have been highly embarrassing for the U.S. government to have had this divulged,” and so they kept it a secret, preferring to make a scapegoat of our father.

For decades we have argued that the evidence presented at the trial, even if it were legitimate, revealed no significant secrets about the theory or construction of the first atom bombs. In fact, the material allegedly passed was full of errors. We have noted that Klaus Fuchs, the British scientist who confessed to spying, had provided much more detailed and accurate information. Since 1999 the American public has known about the successful spying of another atomic scientist, Theodore Hall. This latest revelation shows there was an even more significant breach of the Manhattan Project. Furthermore, as early as 1948, two years before our parents’ arrests, the United States government knew about the effective spying of Dr. George Koval. This vindicates our major argument: the charge that Julius and Ethel Rosenberg stole the secret of the atom bomb was a fraud from the moment that the prosecutors, with the connivance of the Atomic Energy Commission, made that case.

Our parents were sacrificed so that United States intelligence agencies could save face and cover up their negligence.

Robert Meeropol
Michael Meeropol
Easthampton, Mass., Nov. 15, 2007

Jason writes:

15 Things I Just Learned About the Amazon Kindle - Boing Boing Gadgets: Its eBooks have DRM (filetype: .AZW), but it supports unprotected Mobipocket books (.MOBI, .PRC), .TXT files, HTML, and Word. Some files can be transferred over USB, while others have to be emailed to the special per-device Kindle email. (More on that later.) It has a web browser.... You can download text and other files to the device from the web for later storage.... It can play Audible audiobooks... MP3s copied to its internal storage... on random shuffle... a human-powered search query system powered by Amazon's Mechanical Turk... you'll pay for RSS, but not the web. Mobipocket DRM'd files will not work on the Kindle.... PDF is not supported.... GIF and JPEG are supported... only two fonts: Caecilia and Neue Helvetica... the only two file formats this thing can read natively are .AZW and .TXT. That's a huge bummer.

Maybe I am short sighted. But I cannot see a market. For $400 it seems better to get something else, more flexible.

Paul Krugman writes:

Thinking about the dollar: I have to do some teaching on the subject of the falling dollar and whether it’s recessionary. So herewith some ruminations.... [T]hink of the Fed as setting “the” interest rate (more on that later), and facing two tradeoffs. On one side, the lower the interest rate the higher is employment. On the other side, the lower the interest rate the lower the dollar. In normal times the Fed tries to set the interest rate so as to achieve more or less full employment, and lets the dollar fall where it may.

Now along comes a change in investor expectations that makes the dollar weaker at any given interest rate... a weaker dollar means stronger exports and less imports.... We’d expect [this] to lead to a weaker dollar (duh) and also higher interest rates — but the latter effect would happen only because the Fed is trying to offset the expansionary effect of that weaker dollar. It shouldn’t depress the economy at all.

OK, so how do we make this story more pessimistic?

One way is to argue that the Fed will have to raise interest rates more than is necessary to stabilize employment... the falling dollar will be inflationary, so the Fed will have to support the dollar with higher interest rates to ward off this inflation. OK, this could be right, but I have a hard time making the numbers look big enough to get worried about.... Another argument I used to make was that a dollar plunge would pop the housing bubble.... But the bubble popped all on its own....

Finally, there’s a fairly subtle argument about term structure and timing. You see, the Fed only controls short-term interest rates, while investment spending depends on long-term rates. Meanwhile, the effects of a weak dollar on exports take a while, maybe as much as two years, to take full effect.... This story depends on the effect of interest rates on demand working faster than the effect of the exchange rate on exports. I guess this could work. But it’s a fairly tricky story, and a lot subtler than the alarm I’ve been hearing....

When people wonder why anyone would invest in the US without a rise in interest rates, you have to make the distinction between a falling dollar and a fallen dollar. If the dollar gets really weak, investors will see US assets as a bargain.... The question is how far the dollar has to fall to make that happen, and whether the Fed can let that big a fall happen.

Paul Krugman points out that the Washington Post's attack this morning is based on two egregious rippings of quotes from context.

The saddest thing is that this comes as no surprise. No surprise at all.

Over at Seeking Alpha, Roger Ehrenberg writes:

Nothing New About 'Liquidity Puts': "Liquidity puts" - yet another new and ominous sounding term for something that has been in existence for a long, long time.... [D]on't sit there and tell me that these risks are new, special and different. They're not. It is only that certain investors have been awakened from their heavenly slumbers by a heaping dose of reality. And whose fault is that? If you want to play in the world of complex instruments than read the documents. Very. Carefully. Don't rely on the rating agencies - they won't save you. And don't count on clear and useful accounting rules or detailed company disclosures to bail you out. You've got only your own brains, perspective and diligence to count on. And if any of these three are lacking - look out...

The other view, of course, is that your brains, perspective, and diligence are to be applied in looking at a firm's balance sheet--that if it is not on the balance sheet, it is not an asset or a liability of the company. And Ehrenberg quotes from Fortune:

Citi... insert[d] a put... into... CDOs that were backed by subprime mortgages.... The put allowed any buyer of these CDOs who ran into financing problems to sell them back - at original value - to Citi...

And from Wikipedia:

Securitization occurs when a company groups together assets or receivables and sells them in units to the market through a trust.... Companies often do this in order to remove these assets from their balance sheets and monetize an asset. Although these assets are "removed" from the balance sheet... that does not end the company's involvement. Often the company maintains a special interest.... Any payments from the trust must be made to regular investors in precedence to this interest.... The aforementioned brings into question whether the assets are truly off balance sheet given the company's exposure to losses on this interest...

And Ehrenberg goes on:

Liquidity puts and its variants are strewn across the entire securitization landscape and have been for a few decades, and any investor that buys and sells the shares of financial institutions without understanding this concept is in for a lot of pain. The likelihood of incurring this pain has always been there, it is only that today's markets being as they are that the fat tail of the distribution has finally come along...

Perhaps I am naive. But I think that any company that writes out-of-the-money puts should carry them on its balance sheet.

He writes:

As Bank Profits Grew, Warning Signs Went Unheeded: The banks were doing a lot better than they should have been doing.... There were signs that banks were either lying about their results or were taking large risks that were not fully disclosed, but investors were oblivious.... Consider how banks make money. They pay low rates on short-term deposits and charge higher rates on long-term loans. So they love what are known as positively sloped yield curves. And they like to see big credit spreads.... By that light, nothing was going right in 2006 and early this year. The yield curve was inverted, or at best flat. And credit spreads were at historic lows.... And yet the bank stocks were buoyant, and so were reported profits....

Instead of being suspicious, many analysts believed that banks had found a new way to prosper. Making a loan and keeping it on the balance sheet until it was repaid was so old-fashioned. It was far better to collect fees for arranging transactions and passing on the risk to others. We did not ask why passing on risks should be so profitable to the risk-passers. In reality, it was not. In recent weeks, we have learned of many risks the banks kept. Not only did we not understand them, but there is every indication that senior managements did not either....

There were many other funny ways to bolster profits, like specialized investment vehicles, or SIVs. These creatures bought those C.D.O. securities, paying for them with money borrowed in the commercial paper market. Just like banks, the SIVs borrowed short and lent long. The spreads might be thin, but they could employ leverage to make narrow margins go a long way. The SIVs did not have much capital, but so long as everyone believed in C.D.O.’s, they did not need it. The banks that set up the vehicles swore they had no continuing interest in them, and so they also vanished from any balance sheet that investors could see. Now they are costing banks money to prop them up.

Jamie Dimon, the chief executive of JPMorgan Chase, told investors this week that “SIVs don’t have a business purpose” and “will go the way of the dinosaur.” Will they take the securitization system with them? The answer to that question may be crucial in determining how soon the financial system recovers...

Is America's Social Security system now in a long-run funding crisis? The answer to this question is "no." It's more likely than not that Social Security revenues will have to be raised a bit or benefits cut a bit relative to current law or both in the next fifty years, and almost certain that one or the other or both will have to be done in the next century. But it is a long-run problem, not a crisis. And it is--relative to the scale of other things that have gone wrong--not a large long-run problem.

Back in the 1990s was there good reason to think that America's Social Security system was in a long-run funding crisis? No: back then we did have a more pessimistic view of what long-run productivity growth was likely to be, and thus the long-run Social Security shortfalls made themselves visible more quickly and were larger in magnitude, but it was still a problem--not a crisis.

Is America's entire budget--Social Security plus Medicare plus Medicaid plus defense plus all other spending plus the Bush tax cuts--in crisis? Yes.

Ruth Marcus of the Washington Post demonstrates that she has not taken the time to think issues through enough to grasp these three points, and so makes a fool of herself. It raises once again the question of why they bother to print the Washington Post each day, and makes me ask once again why oh why can't we have a better press corps? But I am going to outsource this one to Mark Thoma:

Economist's View: Ruth Marcus Tries to Show Her Beltway Badge of Seriousness: Ruth Marcus shows two things... she hasn't a clue about Social Security financing... she has no problem at all presenting a distorted picture to rationalize her clueless position.... [T]here's been so much written that it's hard to believe that anyone who isn't being willfully ignorant could be unaware of the true magnitude of the problem....

[H]ad Ruth Marcus included this quote from Paul Krugman's 2005 piece in her editorial (or quotes from other pieces of the vast amount Krugman has written about Social Security after 2001), it would have changed the interpretation of the quotes she includes in her article. Here, Paul Krugman explains why the future of Social Security was at issue at that time:

Four years ago, I and many other economists urged policymakers to think about the future cost of Social Security benefits, not because we thought there was anything wrong with Social Security itself, but because we regarded the future costs as a compelling reason not to cut taxes even if the overall budget was in surplus.

Keep that quote in mind, i.e. that the worry was that the Bush tax cuts would eat away at the accumulated Social Security surplus, as they did, as you read Ruth Marcus' desperate attempt to justify her doom and gloom about the future of Social Security.... [A] lot of the article is just quotes from Krugman from 2001 or earlier (she even reaches back to 1996 at one point) as she tries to turn his concern over the effect tax cuts would have on the surplus, and hence our ability to meet future obligations, into more general concern over a potential crisis in the Social Security program even though that isn't what he was saying (and note the first quote also includes Medicare)...

See also:

http://commentisfree.guardian.co.uk/dean_baker/2007/11/the_crisis_that_isnt.html

http://www.prospect.org/cs/articles?article=hold_that_tax

http://economistsview.typepad.com/economistsview/files/Krugman.NYRevBooks.SeniorMoment.html

• Zhongnanhai

Willem Buiter:

Our currency and our problem: In 1971, the then US Secretary  of the Treasury, John Connolly told his European counterparts: "the dollar is our currency but your problem." So far, Connolly's statement continues to be true.  Every time the dollar weakens, US exporters and US import-competing industries are gaining competitive advantage and/or increasing their profitability.  The explosive growth of US export volumes... is part of the reason that, despite the collapse of US housing construction, the US economy is still expanding.... The weaker dollar also improves the US net external investment position.... With so much of US external liabilities denominated in dollars, every time the dollar weakens, the world largest debtor feels a little wealthier. The Chinese authorities, despite moves to diversify their foreign asset holdings, still... hold over a trillion dollars... in US Treasury... The Japanese authorities have a similar exposure... have re-confirmed their reputations for being among the world's worst portfolio investors.... [T]he Chinese and Japanese authorities... presenting their tax payers with a further $200bn to $300bn capital loss... a heavy price to pay for access to US markets for your exports, especially for a poor country like China....

I fear, however, that the good news about dollar weakness for the US is about to come to an end. Sooner rather than later, the weakness of the dollar, and fear of its future weakening, will trigger a large increase in long-term US interest rates, nominal and real.... The further weakening of the US dollar will continue to boost the tradable sectors of the US economy, but any sharp increase in long-term nominal and real interest rates will hit investment spending.... It won't be pretty.  Expansionary monetary policy measures will be limited because a collapse of the dollar will have non-trivial inflationary consequences...

It is not clear to me what model Buiter is working in. In economists' default model, expectations are, in general, not of a particular rate of change of the dollar but of a future level for the dollar. If domestic interest rates are high (relative to interest rates abroad, adjusted for risk and other factors) then the value of a currency will be above its long-run expectation. If If domestic interest rates are low (relative to interest rates abroad, adjusted for risk and other factors) then the value of a currency will be below its long-run expectation. But it is not the case that expectations of decline drive up domestic interest rates--not unless a central bank is driving up domestic interest rates because it wants to keep a currency worth more than its long-run expectation. And the U.S. Federal Reserve is not in the business of pushing up domestic interest rates in order to keep the value of the dollar high.

So how then is it that Buiter expects "the weakness of the dollar, and fear of its future weakening" will "trigger a large increase in long-term US interest rates"?

One possibility is the following chain of causation:

• Past declines in the value of the dollar push up import prices.
• Rising import prices produce inflation.
• Existing inflation leads workers, managers, and savers to expect future inflation.
• The Federal Reserve has to raise interest rates to create mass unemployment to keep those expectations of future inflation from turning into actual high inflation.

But there seems to be another line of argument back there: one in which demand for dollar-denominated bonds is diminished by the mere fact that they have been a money-losing asset class in the past, and that this is a source of excess volatility in the currency markets. Such excess volatility is a bad thing for U.S. consumers of imports--they will face lousy terms of trade. It is a good thing for U.S. manufacturing companies and their workers. It is probably a small net minus for the country as a whole. However, it is not enough of a net minus to justify the Federal Reserve hitting the economy on the head with a brick--raising interest rates to recessionary levels--in order to prop up the value of the dollar.

The potential problem is only if rising import prices make people scared of rapidly-rising inflation. This makes me think that a suggestion Greg Mankiw made once--that the Federal Reserve should focus on and disseminate not core inflation--inflation ex food ex energy--but supercore inflation--inflation ex food ex energy ex imports.

• Inferno XV: Brunetto Latini: "And appeared among them not the loser but the winner"
• Farinata degli Uberti

Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

But, in a larger sense, we can not dedicate -- we can not consecrate -- we can not hallow -- this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth.

6:48 sunrise on November 14. I am not made for this shortness-of-days business. Not made for this at all. I want the days to be long.

Why don't more of us think about seasonal migration? Northern-hemisphere winter in Sydney or Capetown or Buenos Aires has advantages for those of us who dislike waking up or spending a lot of time in the evening when it is dark.

Why I am glad I do not spend my summers in Washington DC. From Rick Atkinson, The Day of Battle:

Only the Washington heat remained inhospitable. The wife of the economist John Maynard Keynes was found perched, entirely nude, in front of the open door of a Westinghouse refrigerator in the Georgetown house where the couple were staying...

Listening to Robert Pinsky read his translation of Dante's Inferno...

Most notable moments:

• Frederick II's chancellor in the wood of suicides
• Brunetto Latini in the desert of raining fire: "not the loser, but the winner..."
• Farinata degli Uberti: "That news pains me more..."
• "Perhaps you did not think that I was a logician?..."
• "Vexilla prodeunt regis inferni..."

The fourteen-year-old says that Pinsky talks way too fast for the poem. I agree.

Hoisted from Comments: Bonnie on Vioxx:

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal: I took Vioxx for 3 and half years and had no heart problems; but, I did have major pain relief. While I was switched to Celebrex, I still have not had the pain relief I had from Vioxx. I took Paxil and had some serious adverse affects long before I took Vioxx. I was outraged and wanted Paxil taken off the market. Yet, since then, I have found some friends and relatives who have benefited greatly by Paxil. Now, with both experiences under my belt, I believe if the people are provided good information about the product and they choose to take it, it should be available.

The thing about all these drugs is that they ALL will help some people miraculaously and hurt some people terribly. However, I resent that I am not able to choose to use Vioxx because of the dishonesty of the drug company and the fear created by the way this issue has been handled. Of course, the other reality is that if there is only a small portion of the public who can use a drug, the companies will not offer them, such as the case of orphan drugs. However, the real problem seems to be the ignorance of doctors and the public about these drugs.

Most of the doctors and the public do no research to find out if what the drug salesman has provided good information beyond the "selling" propaganda. If that occurred the drug company would have more reason to be forthcoming with the studies.

Maybe.

Mona of Unqualified Offerings sends us to the usually-excellent FireDogLake, where Jane Hamsher does bad bad thing in introducing Naomi Klein. Jane writes:

Firedoglake: The political impulse to take advantage of social upheaval in order to implement unpopular policies that a citizenry would otherwise fight against seems to be throughout history a rather intuitive one. In The Shock Doctrine, however, Naomi Klein looks at how Milton Friedman and “The Chicago Boys” — fundamentalist free marketeers whose orthodoxy was incubated under Friedman at the University of Chicago — codified it into economic writ:

[Friedman] observed that “only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

Those who remember the hasty passage of the Patriot Act and wondered at how the government could suddenly disgorge a tome of civil rights-infringing legislation the size of the Manhattan phone book only weeks after 9/11 and then proceed to bludgeon members of Congress into voting for it in the name of combating terrorism will find the blueprint achingly familiar. If Ronald Reagan was the original White House prophet of Friedman’s views, George Bush has been its most devoted acolyte...

One would imagine from this that Milton Friedman approved of the Un-Patriot Act--which he most definitely did not. Unlike Hayek, Friedman believed in individual liberty and autonomy first, and order and hierarchy second if at all.

One would imagine from this that Milton Friedman approved of George W. Bush. Friedman did think that George W. Bush was a better president than almost any Democrat, but Friedman did spend much of his 90th birthday lunch at the White House telling Bush that his fiscal policy was a disaster.

I take the Friedman quote to be a totally unexceptionable statement of the duty of the intellectual. It is the duty of the intellectual to think and discuss and argue, so that when the crisis does come the plans that are picked up off the shelf and hastily implemented are not-stupid ones.

• Willem Buiter: Our currency and our problem

Paul says:

Long-run budget math - Paul Krugman: Start with the current position. Last year, federal spending on Social Security, Medicare, and Medicaid was 8.5 percent of GDP, equally divided between Social Security and the health care programs. Dismal long-run projections, like those of the GAO, have this total rising by 10 percentage points of GDP by mid-century.

So, how much of this is a Social Security problem? Pundits like Tim Russert love to point out that in its early days Social Security had 16 workers paying in for every retiree receiving benefits. But this is irrelevant; looking forward, we’ll see the worker-beneficiary ratio fall from about 3 to 2 as the baby boomers retire. This will raise the percentage of GDP spent on Social Security from about 4 to 6 — that is, a rise of about 2 percentage points of GDP, which is a small fraction of the entitlements problem.... What’s more, Social Security has already been strengthened to deal with this rise. In 1983 the payroll tax was increased and adjustments made to the retirement age, so as to build up a trust fund.... This brings us to the claim that the trust fund doesn’t exist, because it’s invested in government bonds. The full explanation of why this is sophistry is here.

The bottom line is that Social Security is just not the major problem. Now, part of the projected rise in Medicare and Medicaid costs represents the effects of an aging population. But as a new report from the CBO explains, demography is only a minor factor — mainly it’s rising health care costs. What’s more, the proposed “solutions” for the Social Security problem have no relevance to the issue of rising Medicare costs.... The Beltway obsession with Social Security is a classic case of a little knowledge being a dangerous thing. People have picked up a few facts about demography, and think they understand the long run budget problem. They don’t.

PS: OK, from some communications I see that 2017 — the projected date at which payroll taxes no longer cover benefit payments — has raised its ugly head. But there is no interpretation under which 2017 matters. Social Security legally has its own dedicated funding; if you believe the government will honor the law, the surpluses the system is now running are building up a trust fund, which will finance the system for decades after 2017, and maybe forever. If you think the law will be ignored, then Social Security doesn’t really have its own budget — the payroll tax is just one of many taxes, and SS benefits are just one of many government costs. In that case the relationship between payroll taxes and benefits is irrelevant.

The only way to make 2017 matter is to change the rules midway: when SS runs surpluses they don’t count, but when it runs deficits they do.

The average IQ score of America's "white" population today is 100. According to Ulric Neisser, America's "white" children in 1932 had an average today's-test IQ score of 80. Dutch army conscripts in 1952 scored 30 IQ points lower than conscripts in 1982. Dickens and Flynn (2006) estimate that the African-American IQ test average rose by 6 points relative to the "white" average between 1972 and 2002. According to Brierley (1970), in the 1960s African-Americans from Ohio had an average IQ score greater than that of whites from Arkansas by 10 points. Thomas Sowell reports that in Northern Ireland the Catholic average lags the Protestant average by 15 IQ points.

What do William Saletan and his editors at Slate do with this? Here:

Race, genes, and intelligence. - By William Saletan - Slate Magazine: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights... -- Declaration of Independence."... I wish these assurances were true. They aren't. Tests do show an IQ deficit, not just for Africans relative to Europeans, but for Europeans relative to Asians. Economic and cultural theories have failed to explain most of the pattern.... It's time to prepare for the possibility that equality of intelligence, in the sense of racial averages on tests, will turn out not to be true.

If this suggestion makes you angry... you're not the first to feel that way. Many Christians are going through a similar struggle over evolution. Their faith in human dignity rests on a literal belief in Genesis.... But this time, the threat is racial genetics, and the people struggling with it are liberals.... [I]f you choose to fight the evidence, here's what you're up against. Among white Americans, the average IQ, as of a decade or so ago, was 103. Among Asian-Americans, it was 106. Among Jewish Americans, it was 113. Among Latino Americans, it was 89. Among African-Americans, it was 85. Around the world, studies find the same general pattern: whites 100, East Asians 106, sub-Sarahan Africans 70. One IQ table shows 113 in Hong Kong, 110 in Japan, and 100 in Britain....

[T]here's a mountain of evidence that differential evolution has left each population with a balance of traits that could be advantageous or disadvantageous, depending on circumstances. The list of differences is long and intricate. On average, compared to whites, blacks mature more quickly in the womb, are born earlier, and develop teeth, strength, and dexterity earlier. They sit, crawl, walk, and dress themselves earlier. They reach sexual maturity faster, and they have better eyesight. On each of these measures, East Asians lag whites and blacks. In exchange, East Asians get longer lives and bigger brains.

How this happened isn't clear. Everyone agrees that the three populations separated 40,000 to 100,000 years ago. Even critics of racial IQ genetics accept the idea that through natural selection, environmental differences may have caused abilities such as distance running to become more common in some populations than in others. Possibly, genes for cognitive complexity became so crucial in some places that nature favored them over genes for developmental speed and vision. If so, fitness for today's world is mostly dumb luck. If we lived in a savannah, kids programmed to mature slowly and grow big brains would be toast. Instead, we live in a world of zoos, supermarkets, pediatricians, pharmaceuticals, and information technology. Genetic advantages, in other words, are culturally created.

Not that that's much consolation if you're stuck in the 21st century with a low IQ...

Let's turn the microphone over to the impeccably right-wing Thomas Sowell to deal with this:

Thomas Sowell on Race, Genes, and IQ: Vol. 28, American Spectator, 02-01-1995, pp 32: [They] seem to conclude... that... biological inheritance of IQ... among members of the general society may also explain IQ differences between different racial and ethnic groups.... Such a conclusion goes... much beyond what the facts will support....

[T]he greatest black-white differences are not on the questions which presuppose middle-class vocabulary or experiences, but on abstract questions such as spatial perceptual ability.... [the] conclusion that this "phenomenon seems peculiarly concentrated in comparisons of ethnic groups" is simply wrong. When European immigrant groups in the United States scored below the national average on mental tests, they scored lowest on the abstract parts of those tests. So did white mountaineer children in the United States tested back in the early 1930s. So did canal boat children in Britain, and so did rural British children compared to their urban counterparts, at a time before Britain had any significant non-white population. So did Gaelic-speaking children as compared to English-speaking children in the Hebrides Islands. This is neither a racial nor an ethnic peculiarity. It is a characteristic found among low-scoring groups of European as well as African ancestry.

In short, groups outside the cultural mainstream of contemporary Western society tend to do their worst on abstract questions, whatever their race might be....

Perhaps the strongest evidence against a genetic basis for intergroup differences in IQ is that the average level of mental test performance has changed very significantly for whole populations over time and, moreover, particular ethnic groups within the population have changed their relative positions during a period when there was very little intermarriage to change the genetic makeup of these groups.

While [Herrnstein and Murray's] The Bell Curve cites the work of James R. Flynn, who found substantial increases in mental test performances from one generation to the next in a number of countries around the world, the authors seem not to acknowledge the devastating implications of that finding for the genetic theory of intergroup differences, or for their own reiteration of long-standing claims that the higher fertility of low-IQ groups implies a declining national IQ level. This latter claim is indeed logically consistent with the assumption that genetics is a major factor in interracial differences in IQ scores. But ultimately this too is an empirical issue--and empirical evidence has likewise refuted the claim that IQ test performance would decline over time.

Even before Professor Flynn's studies, mental test results from American soldiers tested in World War II showed that their performances on these tests were higher than the performances of American soldiers in World War I by the equivalent of about 12 IQ points. Perhaps the most dramatic changes were those in the mental test performances of Jews in the United States. The results of World War I mental tests conducted among American soldiers born in Russia--the great majority of whom were Jews--showed such low scores as to cause Carl Brigham, creator of the Scholastic Aptitude Test, to declare that these results "disprove the popular belief that the Jew is highly intelligent." Within a decade, however, Jews in the United States were scoring above the national average on mental tests, and the data in The Bell Curve indicate that they are now far above the national average in IQ.

Strangely, Herrnstein and Murray refer to "folklore" that "Jews and other immigrant groups were thought to be below average in intelligence. " It was neither folklore nor anything as subjective as thoughts. It was based on hard data, as hard as any data in The Bell Curve. These groups repeatedly tested below average on the mental tests of the World War I era, both in the army and in civilian life. For Jews, it is clear that later tests showed radically different results--during an era when there was very little intermarriage to change the genetic makeup of American Jews.

My own research of twenty years ago showed that the IQs of both Italian-Americans and Polish-Americans also rose substantially over a period of decades. Unfortunately, there are many statistical problems with these particular data, growing out of the conditions under which they were collected. However, while my data could never be used to compare the IQs of Polish and Italian children, whose IQ scores came from different schools, nevertheless the close similarity of their general patterns of IQ scores rising over time seems indicative--especially since it follows the rising patterns found among Jews and among American soldiers in general between the two world wars, as well as rising IQ scores in other countries around the world.

The implications of such rising patterns of mental test performance is devastating to the central hypothesis of those who have long expressed the same fear... that the greater fertility of low-IQ groups would lower the national (and international) IQ over time. The logic of their argument seems so clear and compelling that the opposite empirical result should be considered a refutation of the assumptions behind that logic....

A man who scores 100 on an IQ test today is answering more questions correctly than his grandfather with the same IQ answered two-generations ago, then someone else who answers the same number of questions correctly today as this man's grandfather answered two generations ago may have an IQ of 85.

Herrnstein and Murray openly acknowledge such rises in IQ and christen them "the Flynn effect," in honor of Professor Flynn who discovered it. But they seem not to see how crucially it undermines the case for a genetic explanation of interracial IQ differences. They say:

The national averages have in fact changed by amounts that are comparable to the fifteen or so IQ points separating blacks and whites in America. To put it another way, on the average, whites today differ from whites, say, two generations ago as much as whites today differ from blacks today. Given their size and speed, the shifts in time necessarily have been due more to changes in the environment than to changes in the genes.

While this open presentation of evidence against the genetic basis of interracial IQ differences is admirable, the failure to draw the logical inference seems puzzling. Blacks today are just as racially different from whites of two generations ago as they are from whites today. Yet the data suggest that the number of questions that blacks answer correctly on IQ tests today is very similar to the number answered correctly by past generations of whites. If race A differs from race B in IQ, and two generations of race A differ from each other by the same amount, where is the logic in suggesting that the IQ differences are even partly racial?... It is a question of the validity of the conclusion that differences between genetically different groups are due to those genetic differences, whether in whole or in part. When any factor differs as much from Al to A2 as it does from A2 to B2, why should one conclude that this factor is due to the difference between A in general and B in general?...

A remarkable phenomenon commented on in the Moynihan report of thirty years ago goes unnoticed in The Bell Curve--the prevalence of females among blacks who score high on mental tests. Others who have done studies of high- IQ blacks have found several times as many females as males above the 120 IQ level. Since black males and black females have the same genetic inheritance, this substantial disparity must have some other roots, especially since it is not found in studies of high-IQ individuals in the general society, such as the famous Terman studies, which followed high-IQ children into adulthood and later life. If IQ differences of this magnitude can occur with no genetic difference at all, then it is more than mere speculation to say that some unusual environmental effects must be at work among blacks. However, these environmental effects need not be limited to blacks, for other low-IQ groups of European or other ancestries have likewise tended to have females over-represented among their higher scorers, even though the Terman studies of the general population found no such patterns.

One possibility is that females are more resistant to bad environmental conditions, as some other studies suggest. In any event, large sexual disparities in high-IQ individuals where there are no genetic or socioeconomic differences present a challenge to both the Herrnstein- Murray thesis and most of their critics.

Black males and black females are not the only groups to have significant IQ differences without any genetic differences. Identical twins with significantly different birthweights also have IQ differences, with the heavier twin averaging nearly 9 points higher IQ than the lighter one. This effect is not found where the lighter twin weighs at least six and a half pounds, suggesting that deprivation of nutrition must reach some threshold level before it has a permanent effect on the brain during its crucial early development.

Perhaps the most intellectually troubling aspect of The Bell Curve is the authors' uncritical approach to statistical correlations. One of the first things taught in introductory statistics is that correlation is not causation. It is also one of the first things forgotten, and one of the most widely ignored facts in public policy research. The statistical term "multicollinearity," dealing with spurious correlations, appears only once in this massive book.

Multicollinearity refers to the fact that many variables are highly correlated with one another, so that it is very easy to believe that a certain result comes from variable A, when in fact it is due to variable Z, with which A happens to be correlated. In real life, innumerable factors go together. An example I liked to use in class when teaching economics involved a study showing that economists with only a bachelor's degree had higher incomes than economists with a master's degree and that these in turn had higher incomes than economists with Ph.D.'s. The implication that more education in economics leads to lower incomes would lead me to speculate as to how much money it was costing a student just to be enrolled in my course. In this case, when other variables were taken into account, these spurious correlations disappeared. In many other cases, however, variables such as cultural influences cannot even be quantified, much less have their effects tested statistically....

• Death at a Funeral
• Sebastian Holsclaw: On Torture Hypotheticals--The Conservative Perspective
• Alexander Hill Everett
• North American Review
• The North American Review in Cornell University's Making of America
• Katherine of Obsidian Wings: Choose Your Own Adventure

The highly intelligent and moral--if right-wing--Sebastian Holsclaw tells a few home truths, as he sees them:

Obsidian Wings: On Torture Hypotheticals--Conservative Perspective: I've written on the topic before, but a recent post by Patterico convinced me to revisit it.... My answer to his hypothetical is 'yes.'... In extreme situations, where you know that the person knows the information, and you need an immediate answer, IF it were effective, I wouldn't shed too many tears over 3 minutes of waterboarding.... My answer to what I think lies behind the hypothetical is rather different.  The hypothetical has nothing to do with the discussion of whether or not we (the United States) ought to be torturing people.  One of the key things that conservatives ought to remember (and which we notice all the time in liberal proposals) is that INTENTIONS DO NOT EQUAL OUTCOMES.  The government is horribly incompetent at all sorts of things and we ought not abandon that insight when analyzing proposals of people who allege that they are our allies (the idea that Bush is a conservative ally is something I'd like to argue about on another day--but my short answer is that he isn't).... I don't trust the governmen.... Bush's administration has tortured men who not only didn't know anything about what they were being tortured about, but weren't even affiliated with Al Qaeda. 

Let me say that again.  Bush's administration has tortured men who were factually innocent. 

Not men who got off on technicalities.  Factually Innocent. 

Your hypothetical demands that the government be CERTAIN of the following things:

This man is who we think he is.

This man knows what we think he knows.

No non-torture technique will work.

Patterico, you work with the government.  You know for a fact that it gets things wrong all the time.  Even when we go through the huge and complicated process of a trial, it gets things wrong.  And we aren't talking anything like a trial here.  In reality, we are talking about torturing suspects.  That is not a power to be given to the government.

Your hypothetical doesn't speak to the question of what the policy of our government ought to be, because no important part of the hypothetical actually has anything to do with the empirical reality of governmental torture.  You pride yourself at not being distracted by stated intentions which have bad consequences in areas like rent control, housing policy, and education policy.  Don't let Bush wave the national security flag and make you forget everything you know about how the government actually operates.

As background, Dr. David Graham, Associate Director for Science and Medicine in the FDA's Office of Drug Safety, in 2004:

Dr. Graham's Testimony to Senate Committee on Vioxx, FDA Failures: Prior to approval of Vioxx, a study was performed by Merck named 090. This study found nearly a 7-fold increase in heart attack risk with low dose Vioxx.... In November 2000, another Merck clinical trial named VIGOR found a 5-fold increase in heart attack risk with high-dose Vioxx.... In 2002, a large epidemiologic study reported a 2-fold increase in heart attack risk with high-dose Vioxx.... About 18 months after the VIGOR results were published, FDA made a labeling change about heart attack risk with high-dose Vioxx, but did not place this in the Warnings section. Also, it did not ban the high-dose formulation and its use..... In March of 2004, another epidemiologic study reported that both high-dose and low-dose Vioxx increased the risk of heart attacks compared to Vioxx's leading competitor, Celebrex....

If you apply the risk-levels seen in the 2 Merck trials, VIGOR and APPROVe, you obtain a more realistic and likely range of estimates for the number of excess cases in the US. This estimate ranges from 88,000 to 139,000 Americans. Of these, 30-40% probably died. For the survivors, their lives were changed forever...

If you believe Dr. Graham--which I am not sure that I do--we have 30,000 excess deaths from Vioxx. A $5 billion settlement amounts to $170,000 per extra death caused, which does not seem to me to be grossly out of line on the high side as a sanction on a company whose marketing department did not want warning labels.

The usually-reliable Joseph Nocera has a different view:

Forget Fair; It’s Litigation as Usual: They had the kits ready to go. The “trial package,” they called it... the plaintiffs’ bar always develops a trial kit when a mass tort gets to a certain point; it’s one of the weapons trial lawyers use to put pressure on the company they are attacking. The big-time lawyers who bring the early cases... wind up spending $1 million to $1.5 million developing their case... expert witnesses... discovery... depositions... jury consultants.... And then they put their collective knowledge in a neat little package of documents and videotaped depositions and suggested lines of attack, so that all the other lawyers who have sued the same company can partake of their acquired scholarship, and bring their own trials — for a lot less money. “Ours would have allowed a lawyer to try a legitimate case for under $200,000,” said Mr. Herman, with no small touch of pride. He was talking, of course, about the Vioxx litigation, which the drug’s manufacturer, Merck, settled late last week for the tidy sum of $4.85 billion.

Mr. Herman has 120 of the 27,000 cases — that’s right, 27,000 — that were brought against Merck, which took Vioxx off the market three years ago after a study made it clear that the medication increased the risk of a heart attack or stroke. He was also one of the key architects of last week’s settlement. When I spoke to him a few days ago, he defended the settlement as a fair one, which, as he put it, “balances the scales between two competing parties.” He made it sound like standard business negotiation. Which it was.

But he also said something plaintiffs’ lawyers don’t often say out loud — at least not when a reporter is within hearing distance. “A corporate defendant cannot afford to defend thousands of cases where there is an alleged mass disaster at one time,” Mr. Herman said.... [A]s mass torts have evolved over the last decade, it is that it scarcely matters anymore whether the facts are on the plaintiffs’ side — not when a thousand lawyers are armed with those kits.... Is a mass tort really the right mechanism to settle disputes about product safety, or to punish corporate wrongdoing?

Vioxx was hardly Merck’s finest hour. I’ll readily concede that point. The company did things it shouldn’t have.... Vioxx... was a painkiller that was originally aimed at a pretty small group... people who suffered serious stomach problems as a result of taking aspirin regularly. But Merck spent hundreds of millions of dollars marketing Vioxx... as some kind of miracle pain reliever.... [T]here were rumblings... that Vioxx might increase the risk of heart attacks or strokes. It’s not quite right to say that Merck completely ignored those potential problems — but the company certainly tried to avert its eyes....

There are many problems with viewing product liability lawsuits as a means to right wrongs, which is how we see them in this country. They often make lawyers rich while the people who say they were hurt wind up with very little. The legal system gives corporations zero incentive to step forward if there is evidence that a drug might have a harmful side effect — because, after all, they’ll get sued as soon as they make such an admission. Third, even the smartest lawyers aren’t the Food and Drug Administration, which is charged with making decisions about which drugs should be allowed on the market and how their risks should be disclosed. Mass torts have become a rogue form of regulation, and not necessarily in the public interest. And finally, when you get right down to it, litigation is a crapshoot, and it can be cruelly unfair.

That was certainly true of Vioxx, whose potential side effect is one of the most common serious conditions known to mankind: a heart attack. It is impossible to know what causes someone to have a heart attack, just as it is impossible to know why someone develops cancer. In the Vioxx litigation, the plaintiffs’ lawyers were arguing, in effect, that the way to punish the company’s bad behavior was to make it hand their clients large sums of money, even though they couldn’t prove that the clients’ heart attack had been induced by Vioxx. Meanwhile, the company argued that it was just as likely, if not more likely, that some other risk factor was involved, like smoking or obesity — even though it had put a product on the market that increased heart attack risk.

As a result, a handful of lucky people who may well have been victims of their own bad habits — and not of Vioxx — won large sums of money. (Although they haven’t seen a penny yet: every case the plaintiffs won is on appeal.) And some people who may well have suffered because of Vioxx lost their cases and didn’t get a penny. How does such a system even approximate “justice”?...

[W]hy, then, did Merck settle? Because it had no choice. The four judges managing most of the cases had decided that the time had come to settle the litigation, and Merck was not in a position to say no to the judges.... Besides, Merck had won enough cases that it felt it could devise a settlement that it could live with. Which it did.... [T]he stock jumped when the $4.85 billion deal was announced....

As for the plaintiffs’ lawyers, they are likely to pocket around $1.5 billion of the settlement money, which means that Merck will wind up feeding the beast, just like every other company that finds itself embroiled in a mass tort. That money will go to funding the next mass tort...

A good newspaper story on this would answer three questions about these cases:

1. Is the settlement too large or too small as a sanction on Merck--as a two-by-four to the head of the CEO to make sure that he understands that his job is to curb the enthusiasm of his marketing product when he has a new product with dangerous side effects?
2. Are the lawyers' fees too large or too small--does it give lawyers too much of an incentive to crank up this mass-tort machine as a way of providing drug companies with an incentive to do the right thing?
3. Does the settlement money get to the people who were harmed--to the victims?

My answers in this case to these three questions right now are: (1) probably about right, (2) I don't know but I fear too large, and (3) somewhat but not largely.

My first beef with Joseph Nocera is that his story does nothing to help me get better answers to any of these questions. My second beef is that his story pushes a less-informed reader towards answers--too large, too large, and no--that are largely wrong. My third beef is that Joseph Nocera doesn't set out any ideas about how one might create a better system. My fourth beef is that Joseph Nocera pushes readers wrong answers by playing intellectual three-card monte--if he's going to make a big deal about how large the 27,000 case number is, he has a moral obligation to set it alongside the 30,000 net excess heart attack death number.

And my fifth beef is that Nocera knows damned well that he has a moral obligation to raise the level of the debate, and that he is ducking that obligation.

Why oh why can't we have a better press corps?

Typhoon Sidr hits Bangladesh:

1,723 Dead in Bangladesh Cyclone: PARVEEN AHMED: The official death toll from a savage cyclone that wreaked havoc on southwest Bangladesh reached 1,723 Saturday — the deadliest storm to hit the country in a decade. Military helicopters and ships joined rescue and relief operations and aid workers on the ground struggled to reach victims. Tropical Cyclone Sidr tore apart villages, severely disrupted power lines and forced more than a million coastal villagers to evacuate to government shelters.

The latest death figure tallied to 1,723, with 474 deaths reported from worst-hit Barguna district and 385 from neighboring Patuakhali, a military spokesman, Lt. Col. Moyeenullah Chowdhury, told reporters in the capital, Dhaka. Rescuers battled along roads that were washed out or blocked by wind-blown debris to try to get water and food to people stranded by flooding. Some employed the brute force of elephants to help in their efforts. "We sent a relief team in a jeep, but they had to return halfway as the roads and channels were unpassable," M. Shakil Anwar of CARE Bangladesh said by telephone from nearby Khulna city. The roads were strewn with fallen trees and covered in muddy sludge, Anwar said. Small ferries — which are the only means of transport across the numerous river channels that crisscross the area — were flung ashore by the force of cyclone winds. "We will try again tomorrow on bicycles, and hire local country boats," Anwar said. He added that they planned to distribute dry foods and other emergency rations among 500 families of the area.

On Saturday, the army deployed helicopters to deliver supplies to the remotest areas, while navy ships delivered supplies and dispensed medical assistance to migrant fishing communities living on and around hundreds of tiny islands, or shoals, along the coast...

Ross Douthat wrote:

Ross Douthat: Gerard Alexander's essay on "The Myth of the Racist Republicans" goes further than I would in downplaying Republican racism, but I think his point on this score is basically right:

...Segregationists simply had very limited national bargaining power.... Segregationists wanted policies that privileged whites. In the GOP, they had to settle for relatively race-neutral policies: opposition to forced busing and reluctant coexistence with affirmative action. The reason these policies aren't plausible codes for real racism is that they aren't the equivalents of discrimination.... Kevin Phillips was hardly coy about this in his Emerging Republican Majority. He wrote in 1969 that... "the Republican Party cannot go to the Deep South"-—meaning the GOP simply would not offer the policies that whites there seemed to desire most—-"the Deep South must soon go to the national GOP"...

So the GOP ended up bidding race-neutrality - which a conservative party would have naturally favored anyway, and which is not racism - and symbolic gestures like Reagan's opposition to MLK Day, his support for Bob Jones University's tax exemption, and so forth. These code words and gestures were real and shameful, and contemporary apologies like Ken Mehlman's mea culpa are entirely appropriate. But more often than not, I would submit, pundits who harp on this shame tend to do so because it's an easy way to leap to Krugman's conclusion that race explains everything he doesn't like about contemporary American politics, when in fact an awful lot of it is explained by the fecklessness of his liberal forebears.

Douthat's claim that it is inappropriate to "harp of this shame" of Republican "symbolic gestures" reminds me of Nixon Attorney General John Mitchell and of William Safire. William Safire wrote in his obituary for John Mitchell:

William Safire: "Watch what we do, not what we say." Coming from the law-and-order campaign manager with the visage of a bloodhound, that epigram was interpreted as the epitome of political deceptiveness. But his intent was to reassure blacks that, foot-dragging poses aside, the Nixon Justice Department would accomplish desegregation. Mitchell knew that the appearance of a tilt toward white Southerners would ease the way for acceptance of steady civil rights progress for blacks...

Safire and Mitchell thus go further than Douthat. Douthat says that the symbols were unimportant and did no harm because they were not policy substance. Mitchell and Safire say that the symbols were more than smoke-and-mirrors--that the anti-Black posturing was actually a source of faster progress on civil rights.

I have heard Douthat's or Safire and Mitchell's argument a lot of times, applied to:

• Abortion
• Tolerance
• Fiscal policy
• Race relations

The "these Republicans are really good people--they just talk like thugs" or "these Republicans are really especially good people because they sound like thugs" is just not very convincing at any level.

• Quintessence of Dust: How to evolve a new protein in (about) 8 easy steps
• John Carreyrou: How U.S. Health System Can Fail Even the Insured
• Stan Collender: First Veto Override Shows Bush Is No Superman | Capital Gains and Games
• Shirt Pocket Watch: Leopard Status Update

Re: Michael Sonenscher, Before the Deluge: Public Debt, Inequality, and the Intellectual Origins of the French Revolution.

The book begins:

The phrase après moi le deluge... by... Mme. de Pompadour... and the various attitudes toward impending disaster it might have been intended to express... have often been associated with the French Revolution.... [T]he phrase was current... before 1789... applied to public debt. This... was how it was used... by Victor Requeti, Marquis de Mirabeau.... Mirabeau applied the phrase to... government borrowing and, more particularly, to the practice of using life annuities to fund the costs of government debt. Life annuities, he wrote, were the quintessence of what he called "that misanthropic sentiment [ce sentiment ennemi] après moi le deluge."... [T]hey were a way of drawing bills on posterity. Like all forms of public credit... consumed wealth before it was produced... leaving a state... having to face the future without the accumulted assets... to maintain its long- term domestic prosperity and external security... could... destroy... "civilization."

I am going to have to go read Mirabeau pere's Etretiens d'un Jeune Prince avec Son Governeur. It sounds to me that the phrase is applied by Mirabeau pere to describe not a feckless government that borrows long (to fund wars, canals, or harbors) but rather a feckless father who invests the family wealth in annuities that end on his death. After all, from the viewpoint of long-run governmental fiscal prudence, life annuities are not the quintessence of badness--they are, in fact, vastly preferable to consols. It is only from the viewpoint of the dynastic family that life annuities are especially bad.

Is this a good thing to do at the very opening of a book that presents itself as deriving new insights from close readings of old texts?...

From Dean Acheson (1955), A Democrat Looks at His Party:

p. 23 ff: From the very beginning the Democratic Party has been broadly based... the party of the many... the urban worker; the backwoods merchant and banker; the small farmer... the largelandowners of the South, who saw themselves as being milked by the commerical and financial magnates gathered under Hamilton's banner; the newly arrived immigrants... the party of the underdog.... The many have an important and most relevant characteristic. They have many interests, many points of view, many purposes to accomplish, and a party which represents them will have their many interests, many points of view, and many purposes also. It is this multiplicity of interests which, I submit, is the principal clue in understanding the vitality and endurance of the Democratic Party....

The base of all three opponents [Federalist, Whig, and Republican] has been the interest of the economically powerful, of those who manage affairs.... The economic base and the principal interest of the Republican Party is business.... This business base of the Republican Party is stressed not in any spirit of criticism. The importance of business is an outstanding fact of American life. Its achievements have been phenomenal. It is altogether appropriate that one of the major parties should represent its interests and its points of view. It is stressed because here lies the significant difference between the parties, the single-interest party against the many-interest party, rather than in a supposed division of attitudes... consservative... against... liberal....

[...]

At the end of the [nineteenth] century there was a lesser, but serious, missed opportunity for Democratic leadership in President Cleveland's failure to grasp the significance of the Populist and labor unrest... and in his cautious and unimaginative approach to economic depression. The unrest... did not spring from a radical movement directed against the established order... or the constitutional system. It grew out of conditions increasingly distressing... on the farms and in the factories. Its purposes were the historic purposes of the Democratic party... to keep opportunity open, opportunity not merely to rise from barefoot boy to President but for people to find in their accustomed environments useful, respected, and satisfying lives.... The conditions and popular response had many points of similarity to those of the 1930s.

Grover Cleveland... followed the right as he saw it... through a conservative and conventional cast of mind. The agitation seemed to him... a threat to law and order.... Coxey's Army was met with a barrage of injunctions and... the Capitol police.... The Pullman strike was smashed by federal troops who kept the mails moving, the union leaders imprisoned, and the union crushed. And the financial panic was dealt with through the highly orthodox and [highly] compensated assistance of Mr. Morgan.

The underlying causes... were neither understood nor dealt with... an opportunity was missed.... If, to take one of them, the problems arising out of the concentration of industrial ownership had been tackled when they were still malleable and subject to effective treatment, we might have been spared some aches and pains that are still with us.

But with all this, Grover Cleveland holds an honored place.... When the Congress showed signs... of declaring war on Spain, Cleveland put an end to the business for the duration of his administration by saying... that, if the Congress did declare war, he would refuse to direct it as commander in chief....

[...]

[T]he Democratic Party is not an ideological party.... It represents too many interests to be neatly labeled or to be imprisoned.... It has to be pragramatic.... In the Democratic Party run two strong strands--conservatism and pragmatic experimentation.... [T]he difference between our parties has not been and is not between a party of property and one of proletarians, but between a party which centers on the dominant interests of the business community and a party of many interests, including property interests.... They believe in private property and want more and not less of it. This makes for conservatism.

American labor is now known throughout the world for its conservatism.... the whole stress on seniority grows out of this. Pension rights are property interests of impressive value.... [W]hen a particular kind of property descends in the hierarchy of importance, its owners more and more turn for the protection of their interests to the party of many interests. The owners of land--the farmers--are the most crucial.... Small businesmen, also, are apt to find concern for their problems and welfare lost in the party of business on a larger scale....

But perhaps the strongest influence toward conservatism comes from the south, where for historical reasons all interests... are predominantly Democratic.... Southern conservatism is an invaluable asset. It gibes the assurance that all interests and policies are weighed and considered within the party before interparty issues are framed....

The South also faces us with an equal and opposite truth. It is that some of the most radical leaders of modern times have come from the South. We tend to see men like Watson, Tilman, Vardaman, and Huey Long chiefly in terms of their bellowings about White Supremacy. But if we drain this off--and the if is admittedly of major importance--what we should see is that the mass support of these men was formed by the dispossessed. Huey Long's "share-the-wealth" program was aimed explicitly at th Southern Bourbons.... The tragedy of the South has been that racism has corrupted an otherwise respectable strain of protest and experimentation in the search for economic equality.... For all the apparent contradiction in the fact that the Southern racist belongs to the same political party as the New York supporter of the FERC, the inner logic that holds them togehter is that each speaks for the dispossessed, whether in his rural or urban form. What enables the Democratic Party to contain both elements is the fact that the party since the Civil War has made the Legislature the special province of the Southern Democrat, and the Executive the special province of the Northern Democrat....

Entwined with the strand of conservatism in the Democratic Party is the strand of empiricism. A party which represents many interests and is composed of many diverse groups must invariably know that human institutions are made for man and not man for institutions.... Such a party conceives of government as an instrument to accomplish what needs to be done.... This is not so easy for htose who are persuaded that human behavior is governed by immutable laws, whether they are the laws expounded in the Social Statics of Herbert Spencer or those in the Das Kapital of Karl Marx.... [T]o the Manchester Liberals the Factory Acts ran squarely counter to economic principles and could end only in disaster. The "forgotten man," in the phrase invented by William Graham Sumner... was the producer whose wealth was tapped by the government to bear the cost of the social programs for those whom Sumner regarded as weak....

In the last century the economically powerful have stood to gain by the doctrine of laissez-faire.... It was those whose interests were suffering under the impact of new forces who looked to government... to manage the thrust of forces in the interest of human values.

Now... this... takes... brains.... so the Democratic Party is hospitable to and attracts intellectuals. It has work for them to do...

It's a lawyer's brief. Much of what it says about Southern Democrats is unconvincing. And today's Republican Party is not the Republican Party of 1955--if the party of 1955 was the party of wealth, enterprise, and opportunity the Republican Party of today has dropped the enterprise and opportunity parts and added some others that I at least find much less attractive.

But a very interesting take.

Ross Douthat, I think, gets this wrong:

The GOP and the Race Issue: Southern whites were, and are, natural conservatives who happened to find themselves in the more liberal of the two parties; once Democrats associated themselves with the civil-rights movement, there wasn't anywhere else for white Mississippians and Alabamans to go except the GOP. Gerard Alexander's essay on "The Myth of the Racist Republicans" goes further than I would in downplaying Republican racism, but I think his point on this score is basically right:

Liberal commentators ... assume that if many former Wallace voters ended up voting Republican in the 1970s and beyond, it had to be because Republicans went to the segregationist mountain, rather than the mountain coming to them. There are two reasons to question this assumption. The first is the logic of electoral competition. Extremist voters usually have little choice but to vote for a major party which they consider at best the lesser of two evils, one that offers them little of what they truly desire. Segregationists were in this position after 1968, when Wallace won less than 9% of the electoral college and Nixon became president anyway, without their votes. Segregationists simply had very limited national bargaining power. In the end, not the Deep South but the GOP was the mountain.

Second, this was borne out in how little the GOP had to "offer," so to speak, segregationists for their support after 1968, even according to the myth's own terms. Segregationists wanted policies that privileged whites. In the GOP, they had to settle for relatively race-neutral policies: opposition to forced busing and reluctant coexistence with affirmative action. The reason these policies aren't plausible codes for real racism is that they aren't the equivalents of discrimination, much less of segregation.

... Kevin Phillips was hardly coy about this in his Emerging Republican Majority. He wrote in 1969 that Nixon did not "have to bid much ideologically" to get Wallace's electorate, given its limited power, and that moderation was far more promising for the GOP than anything even approaching a racialist strategy. While "the Republican Party cannot go to the Deep South"-—meaning the GOP simply would not offer the policies that whites there seemed to desire most—"the Deep South must soon go to the national GOP," regardless.

So the GOP ended up bidding race-neutrality - which a conservative party would have naturally favored anyway, and which is not racism - and symbolic gestures like Reagan's opposition to MLK Day, his support for Bob Jones University's tax exemption, and so forth. These code words and gestures were real and shameful, and contemporary apologies like Ken Mehlman's mea culpa are entirely appropriate. But more often than not, I would submit, pundits who harp on this shame tend to do so because it's an easy way to leap to Krugman's conclusion that race explains everything he doesn't like about contemporary American politics, when in fact an awful lot of it is explained by the fecklessness of his liberal forebears.

Paul Krugman has a very effective counter to this:

White male math - Paul Krugman - Op-Ed Columnist - New York Times Blog: In some correspondence with Larry Bartels, whose “What’s the matter with “What’s the matter with Kansas?”" is must reading for anyone trying to understand modern American political, economy, the issue of how the Democrats lost white males came up. Larry points out that you really need to separate out the South. Here’s what he had to say:

Unless you have a peculiar nostalgia for the racially coercive Democratic monopoly of the Jim Crow era, it makes sense to focus on the rest of the country. There, the Democratic share of the two-party presidential vote among white men was 40% in 1952 and 39% in 2004.

White men didn’t turn against the Democrats; Southern white men turned against the Democrats. End of story.

It's not that feckless liberals alienated their previous natural supporters--it's not the case that, as Ronald Reagan liked to claim, "the Democratic Party left me." It is the case that southern white males left the Democratic Party. Northern white males still seem to like the liberal Democratic Party just fine.

Once "feckless liberals" are off the table, Ross seems to want to make two arguments:

1. The Republicans didn't really play the race card ("the GOP ended up bidding race-neutrality... which is not racism - and symbolic gestures like Reagan's opposition to MLK Day, his support for Bob Jones University's tax exemption...").

2. It did not really matter that Republicans played the race card ("Southern whites were, and are, natural conservatives... once Democrats associated themselves with the civil-rights movement, there wasn't anywhere else for white Mississippians and Alabamans to go except the GOP...").

I think that there is a very good counter to Douthat's (1): if the Republican Party really were bidding race-neutrality--if there platform were one of market opportunity plus respect for the family plus respect for the church plus civil order plus race neutrality--they would get an enormous number of African-American votes. African-American voters are more often than not social conservative. African-American voters are extremely eager to support politicians who genuinely fight and reduce crime. Jack Kemp's Republican Party--one that is truly race-neutral, committed to equality of opportunity, and social conservative--is a natural home for most African-American voters. But we do not have that Republican Party, do we? African-American voters believe that the GOP bids racism, and few who have seen George Allen or Trent Lott on YouTube can disagree.

I think Douthat is wrong about (2) as well: it matters that the Republican Party played (and plays) the race card. A Republican Party that was socially conservative and economically classical liberal and retained its long-ago commitment to equality of opportunity--that remembered that it was Abraham Lincoln who freed the slaves--would be a very different Republican Party than the one we see now: it would still have its soul.

From Obsidian Wings:

The Difference Between The Two Parties In A Nutshell: [I]f Congress does not do something, the AMT is going to hit 23 million families with higher taxes this year. The House has passed a bill preventing this from happening. Since, to their credit, they passed PAYGO rules that require that any tax cut or spending increase be paid for, they had to find some way to raise taxes. They found a loophole that allows various fund managers, who earn millions of dollars a year, to count those millions as capital gains, and thus to pay much lower taxes than the rest of us, and they closed it.

For this, they are being excoriated by Republicans. David Dreier thinks that PAYGO rules shouldn't apply to "mistakes":

"But anti-tax Republicans said the AMT was a mistake and thus offsets were unneeded. ''What absolute lunacy,'' said Rep. David Dreier, R-Calif., ''paying for a tax that was never intended.''"

What a fascinating principle: you don't have to pay for costs you incur by mistake. I wonder if our creditors will go for that? And why not extend it to other things as well? The Iraq war, for instance, was never expected to last this long: why should we bother to come up with the billions and billions of dollars we are still paying for it? If it comes to that, why not just throw fiscal responsibility out the window? As far as I can tell, David Dreier thinks that that's the only non-lunatic thing to do.

Similarly:

Rep. Jim McCrery (La.), the ranking Republican on the House Ways and Means Committee, argued that such "a fiscal straitjacket" should not even apply to the alternative minimum tax, reasoning that all Congress is trying to do is keep the taxes of 23 million families from going up. Since that is not really a tax cut, he said, its $52 billion cost to the Treasury should not be paid for...

This exchange makes the issues pretty clear:

"Congress can and must stop this middle class tax hike before Thanksgiving -- without raising taxes," Senate Republican leader Mitch McConnell of Kentucky said Friday. But Pelosi said that "we have an understanding with the Senate that this legislation, in order to go forward, must be paid for." "Raising revenues takes political courage," said House Majority Leader Steny Hoyer, D-Md. "There is no courage whatsoever in plunging our country into debt, spending and not paying"...

Nobody who calls himself a fiscal conservative has any business being a Republican. Nobody. Shutting down the Republican Party and starting over is the best we can do.

I must say David Broder outdoes even himself here:

• May 25, 2006: "[T]he drama of the Clintons' personal life would be a hot topic if she runs for president..."
• September 6, 2007: "[Hillary Clinton's] marriage is the central fact in her life..."
• November 9, 2007: "I plan to leave both subjects [the Giuliani marriages and the single Clinton marriage] alone..."

Why the switch? Greg Sargent opines:

Horses Mouth November 12, 2007 10:15 AM: So Broder won't be writing about the Clinton and Giuliani marriages going forward? Wow, how impressively high-minded of him!... This is kind of funny, because he hasn't shown any such reticence in the past when it comes to looking at the Clintons' union -- far from it.... [B]ack when it really counted -- when the GOP tried to impeach Bill Clinton over his affair -- Broder thought the Clinton marriage was completely fair game. He wrote multiple columns at the time arguing that his affair threw his entire character and even fitness for the Presidency into question.

Yet now, suddenly, when a questioner asks Broder whether he sees serial adulterer Rudy's marriage as fodder for judging his fitness for the Presidency, Broder effectively dodges the allegation of his and the media's double standard by suddenly going all high-minded and saying he won't be discussing the marriages of Rudy or Hillary. The obvious hypocrisy here aside, I propose that we hold Broder to his promise.

Tim Harford sends us to Evan Davis:

BBC NEWS | The Reporters | Evan Davis: Imagine. $100 dollars. It is a lot for a barrel of oil. In fact, it's way up there. Since the 1860s, when people stopped killing whales for oil and dug it up in Pennsylvania instead, the price has averaged a little over $25 a barrel in today's money. We're at four times the long term average price. And as recently as 1998, only nine years ago, oil - on some measures - dipped below $10 a barrel. Although in today's money, for the year as a whole the price was more like 17.

It's clear that $100 a barrel is very high. Although it's worth saying, it's still not a record. 1864 was in fact the most expensive year for oil. It was over $104 in today's money. Notwithstanding that record (and most of us in the media will ignore it when talking of record highs in the next few weeks - we'll be using the high of $104.7 reached in 1980 after the Iranian revolution) we can at least say an impending $100 barrel is getting historically significant...

Felix Salmon writes:

Market Movers by Felix Salmon: Did Anyone Other Than Citigroup Have Liquidity Puts? Why hasn't this "liquidity put" thing gotten greater play? I never made it down to the 11th paragraph of Carol Loomis's interview with Bob Rubin, where she introduces the concept more than 900 words into her article. Floyd Norris, today, does a bit better, taking less than 400 words to get to them. A gold star, then, should go to Peter Cohan of BloggingStocks, who read the Loomis article, realized what he was looking at, and promoted the liquidity puts to headline status back on Monday.

Liquidity puts are a big thing, and indeed it seems that they were more or less singlehandedly responsible for the downfall of Chuck Prince at Citi. Basically, Citi told the world – and kidded itself – that it had sold billions of dollars in CDOs to investors. In reality, however, those CDOs had "liquidity puts" attached, which essentially transformed the CDO "sales" into glorified (or debased) repos. Any time that the investor found the CDO difficult to sell – and CDOs are always difficult to sell – he had the option to put the CDO back to Citi at par. And that's exactly what happened; it was those return-to-sender CDOs which were written down the same weekend Prince resigned.

I do not understand this. Which CDOs? What obligations, exactly, did Citigroup assume? Is this something I already know about under another name? It's not as though Loomis or Norris are comprehensive in their explanations...

• Hobbes: Leviathan
• House of Visconti
• S&P Composite Daily Closing Values

Barry Ritholtz writes:

The Big Picture | Why Thain Over Fink?: Here's something you may not have heard: The surprise selection of NYSE CEO John Thain as Merrill's new CEO over the more widely expected  BlackRock CEO Larry Fink was based on reasons you may not be aware of.  What are those reasons? Well, according to CNBC.com, Fink would only agree to take the position if Merrill was willing to give a full and complete accounting of it's subprime exposure:

Merrill's selection of Thain was a surprise because the firm had recently indicated to BlackRock CEO Larry Fink that the job was his if he wanted it. CNBC has learned that Fink said he would take the job but only if Merrill did a full accounting of its subprime exposure. At that point, Merrill, which owns 49% of BlackRock, moved in a different direction and decided to go with Thain instead.

I obviously have no way to verify that, but I give the benefit of the doubt to CNBC reporters like Charlie Gasparino and Herb Greenberg.  (UPDATE: I have just confirmed with Charlie Gasparino that he was the one who's fine investigative work uncovered this; You can see some of the discussion via CNBC video here, right margin, labeled "The New Bull at Merrill").

Note: I don't know who uncovered this. 

If the story is true, and Fink passed on the position (or was passed over) because of his insistence on a complete sub-prime accounting, apparently not accommodated by Merrill, it makes one wonder what the old lady is hiding.

Waterboarding Demonstration:

Rally Wed,. 11/14 @ Noon, Sproul Plaza, UC-Berkeley. World Can't Wait! http://myspace.com/sfbaycantwait

As Joe McCarthy's birthday comes to an end, let us give the microphone to William F. Buckley, Elliott Abrams, and Joe McCarthy himself:

A Conspiracy so Immense: William F. Buckley says: "McCarthy's record is... not only much better than his critics allege, but, given his metier, extremely good.... [he] should not be remembered as the man who didn't produce 57 Communist Party cards but as the man who brought public pressure to bear on the State Department to revise its practices and to eliminate from responsible positions flagrant security risks."

Elliot Abrams says: "McCarthy did not need to show that specific employees were guilty of espionage; they needed only to show that there was some evidence that an employee was a security or loyalty risk, and that the State Department... had willfully overlooked it.... What were the charges? They ranged from accusations of actual espionage--handing secret documents over to Soviet agents--to involvement in dozens of Communist-front organizations.... Buckley and Bozell asked, 'Did McCarthy present enough evidence to raise reasonable doubt as to whether all loyalty and security risks had been removed from the State Department?' The verdict rendered here is that he did. In most of his cases McCarthy adduced persuasive evidence; the State Department's efforts stood condemned; and the screams of 'Red Scare' were efforts to occlude the truth."

Here's what Joe McCarthy says:

Tail Gunner Joe: Joe McCarthy's Senate speech of June 14, 1951:

How can we account for our present situation unless we believe that men high in this Government are concerting to deliver us to disaster? This must be the product of a great conspiracy, a conspiracy on a scale so immense as to dwarf any previous such venture in the history of man. A conspiracy of infamy so black that, when it is finally exposed, its principals shall be forever deserving of the maledictions of all honest men.

Who constitutes the highest circles of this conspiracy? About that we cannot be sure. We are convinced that Dean Acheson, who steadfastly serves the interests of nations other than his own, the friend of Alger Hiss, who supported him in his hour of retribution, who contributed to his defense fund, must be high on the roster. The President? He is their captive. I have wondered, as have you, why he did not dispense with so great a liability as Acheson to his own and his party's interests. It is now clear to me. In the relationship of master and man, did you ever hear of man firing master? Truman is a satisfactory front. He is only dimly aware of what is going on.

I do not believe that Mr. Truman is a conscious party to the great conspiracy, although it is being conducted in his name. I believe that if Mr. Truman bad the ability to associate good Americans around him, be would have behaved as a good American in this most dire of all our crises.

It is when we return to an examination of General Marshall's record since the spring of 1942 that we approach an explanation of the carefully planned retreat from victory, Let us again review the Marshall record, as I have disclosed it from all the sources available and all of them friendly. This grim and solitary man it was who, early in World War II, determined to put his impress upon our global strategy, political and military.

It was Marshall, who, amid the din for a "second front now" from every voice of Soviet inspiration, sought to compel the British to invade across the Channel in the fall of 1942 upon penalty of our quitting the war in Europe.

It was Marshall who, after North Africa had been secured, took the strategic direction of the war out of Roosevelt's hands and - who fought the British desire, shared by Mark Clark, to advance from Italy into the eastern plains of Europe ahead of the Russians.

It was a Marshall-sponsored memorandum, advising appeasement of Russia In Europe and the enticement of Russia into the far-eastern war, circulated at Quebec, which foreshadowed our whole course at Tehran, at Yalta, and until now in the Far East.

It was Marshall who, at Tehran, made common cause with Stalin on the strategy of the war in Europe and marched side by side with him thereafter.

It was Marshall who enjoined his chief of military mission in Moscow under no circumstances to "irritate" the Russians by asking them questions about their forces, their weapons, and their plans, while at the same time opening our schools, factories, and gradually our secrets to them in this count.

It was Marshall who, as Hanson Baldwin asserts, himself referring only to the "military authorities," prevented us having a corridor to Berlin. So it was with the capture and occupation of Berlin and Prague ahead of the Russians.

It was Marshall who sent Deane to Moscow to collaborate with Harriman in drafting the terms of the wholly unnecessary bribe paid to Stalin at Yalta. It was Marshall, with Hiss at his elbow and doing the physical drafting of agreements at Yalta, who ignored the contrary advice of his senior, Admiral Leahy, and of MacArtbur and Nimitz in regard to the folly of a major land invasion of Japan; who submitted intelligence reports which suppressed more truthful estimates in order to support his argument, and who finally induced Roosevelt to bring Russia into the Japanese war with a bribe that reinstated Russia in its pre-1904 imperialistic position in Manchuria-an act which, in effect, signed the death warrant of the Republic of China.

It was Marshall, with Acheson and Vincent eagerly assisting, who created the China policy which, destroying China, robbed us of a great and friendly ally, a buffer against the Soviet imperialism with which we are now at war.

It was Marshall who, after long conferences with Acheson and Vincent, went to China to execute the criminal folly of the disastrous Marshall mission.

It was Marshall who, upon returning from a diplomatic defeat for the United States at Moscow, besought the reinstatement of forty millions in lend-lease for Russia.

It was Marshall who, for 2 years suppressed General Wedemeyer's report, which is a direct and comprehensive repudiation of the Marshall policy.

It was Marshall who, disregarding Wedemeyer's advices on the urgent need for military supplies, the likelihood of China's defeat without ammunition and equipment, and our "moral obligation" to furnish them, proposed instead a relief bill bare of military support.

It was the State Department under Marshall, with the wholehearted support of Michael Lee and Remington in the Commerce Department, that sabotaged the $125,000,000 military-aid bill to China in 194S.

It was Marshall who fixed the dividing line for Korea along the thirty-eighth parallel, a line historically chosen by Russia to mark its sphere of interest in Korea.

It is Marshall's strategy for Korea which has turned that war into a pointless slaughter, reversing the dictum of Von Clausewitz and every military theorist since him that the object of a war is not merely to kill but to impose your will on the enemy.

It is Marshall-Acheson strategy for Europe to build the defense of Europe solely around the Atlantic Pact nations, excluding the two great wells of anti-Communist manpower in Western Germany and Spain and spurning the organized armies of Greece and Turkey-another case of following the Lattimore advice of "let them fall but don't let it appear that we pushed them."

It is Marshall who, advocating timidity as a policy so as not to annoy the forces of Soviet imperialism in Asia, had admittedly put a brake on the preparations to fight, rationalizing his reluctance on the ground that the people are fickle and if war does not come, will hold him to account for excessive zeal.

What can be made of this unbroken series of decisions and acts contributing to the strategy of defeat? They cannot be attributed to incompetence. If Marshall were merely stupid, the laws of probability would dictate that part of his decisions would serve this country's interest. If Marshall is innocent of guilty intention, how could he be trusted to guide the defense of this country further? We have declined so precipitously in relation to the Soviet Union in the last 6 years. How much swifter may be our fall into disaster with Marshall at the helm? Where Will all this stop? That is not a rhetorical question: Ours is not a rhetorical danger. Where next will Marshall carry us? It is useless to suppose that his nominal superior will ask him to resign. He cannot even dispense with Acheson.

What is the objective of the great conspiracy? I think it is clear from what has occurred and is now occurring: to diminish the United States in world affairs, to weaken us militarily, to confuse our spirit with talk of surrender in the Far East and to impair our will to resist evil. To what end? To the end that we shall be contained, frustrated and finally: fall victim to Soviet intrigue from within and Russian military might from without. Is that farfetched? There have been many examples in history of rich and powerful states which have been corrupted from within, enfeebled and deceived until they were unable to resist aggression. . . .

It is the great crime of the Truman administration that it has refused to undertake the job of ferreting the enemy from its ranks. I once puzzled over that refusal. The President, I said, is a loyal American; why does he not lead in this enterprise? I think that I know why he does not. The President is not master in his own house. Those who are master there not only have a desire to protect the sappers and miners - they could not do otherwise. They themselves are not free. They belong to a larger conspiracy, the world-wide web of which has been spun from Moscow. It was Moscow, for example, which decreed that the United States should execute its loyal friend, the Republic of China. The executioners were that well-identified group headed by Acheson and George Catlett Marshall.

How, if they would, can they, break these ties, how return to simple allegiance to their native land? Can men sullied by their long and dreadful record afford us leadership in the world struggle with the enemy? How can a man whose every important act for years had contributed to the prosperity of the enemy reverse himself? The reasons for his past actions are immaterial. Regardless of why he has done what be did, be has done it and the momentum of that course bears him onward. . . .

The time has come to halt this tepid, milk-and-water acquiescence which a discredited administration, ruled by disloyalty, sends down to us. The American may belong to an old culture, he may be beset by enemies here and abroad, he may be distracted by the many words of counsel that assail him by day and night, but he is nobody's fool. The time has come for us to realize that the people who sent us here expect more than time-serving from us. The American who has never known defeat in war, does not expect to be again sold down the river in Asia. He does not want that kind of betrayal. He has had betrayal enough. He has never failed to fight for his liberties since George Washington rode to Boston in 1775 to put himself at the head of a band of rebels unversed in war. He is fighting tonight, fighting gloriously in a war on a distant American frontier made inglorious by the men he can no longer trust at the head of our affairs.

The America that I know, and that other Senators know, this vast and teeming and beautiful land, this hopeful society where the poor share the table of the rich as never before in history, where men of all colors, of all faiths, are brothers as never before in history, where great deeds have been done and great deeds are yet to do, that America deserves to be led not to humiliation or defeat, but to victory.

The Congress of the United States is the people's last hope, a free and open forum of the people's representatives. We felt the pulse of the people's response to the return of MacArthur. We know what it meant. The people, no longer trusting their executive, turn to us, asking that we reassert the constitutional prerogative of the Congress to declare the policy for the United States.

The time has come to reassert that prerogative, to oversee the conduct of this war, to declare that this body must have the final word on the disposition of Formosa and Korea. They fell from the grasp of the Japanese empire through our military endeavors, pursuant to a declaration of war made by the Congress of the United States on December 8, 1941. If the Senate speaks, as is its right, the disposal of Korea and Formosa can be made only by a treaty which must be ratified by this body. Should the administration dare to defy such a declaration, the Congress has abundant recourses which I need not spell out.

In my email, an unusual subject heading:

Subject: Bad elevator day, Evans...
To: Evans Department Managers & others: faculty@Math.Berkeley.EDU staff@Math.Berkeley.EDU allgrads@Math.Berkeley.EDU

---

Dear Evans Community,

There have been ongoing problems today with Elevator 1 and Elevator 3. Estimated repair times are not yet fully determined. Please be prepared to wait at the elevator, or take stairs if you are able to do so.

Since Elevator 5 is still under repair, and Elevator 4 is rumored to have just flunked its post-repair safety check, that leaves Elevator 2.

• Think Progress » Majority believe Bush has committed impeachable offenses.
• Michael Tanner on the Massachusetts individual health care mandate » Not to Say We Told You So, But…
• DeLong and Eichengreen: Between Meltdown and Moral Hazard: The International Monetary and Financial Policies of the Clinton Administration
• DeLong: Keynesianism Pennsylvania-Avenue Style
• DeLong: America’s Only Peacetime Inflation: The 1970s
• David Roberts: Centrist dog food | Gristmill: The environmental news blog | Grist

55% of voters are members of the shrill, unbalanced cult that believes that George W. Bush has committed impeachable offenses:

Think Progress » Majority believe Bush has committed impeachable offenses: A new American Research Group poll finds that 55 percent of voters believe President Bush has “abused his powers” in a manner that rises “to the level of impeachable offenses under the Constitution,” yet just 34 percent believe he should actually be impeached. Fifty-two percent say that Vice President Cheney has similarly abused his powers, with 43 percent supporting impeachment.